If you’re happily single and childless, you can probably skip this post (for now). But if marriage or a family is on the horizon, read on.
Although age may play a role in how much life insurance you need, the decision to buy life insurance has nothing to do with age. So when do you need life insurance? Here’s the simple rule:
You need to buy life insurance when somebody else depends on your income.
Here are some common examples:
- If you’re 25 with a wife who is staying home with a newborn, you DO need life insurance.
- If you’re 29 and single, you DO NOT need life insurance.
- If you’re 27, married, and both you and your spouse work, you might not need life insurance yet, but you may want to start thinking about it anyway.
Starting a family means buying life insurance!
In addition, there may be special situations in which you don’t have a family of your own but may still want some life insurance protection. For example, if a parent has cosigned a large student loan or a mortgage for you, a modest life insurance policy could pay their share in the event something happens to you. *See footnote.
Most of us begin to think about life insurance when we have children. That’s what my wife and I did. Shortly after our daughter was born, we both took out term life policies in amounts that would replace each of our individual income for 20 years and cover the expected cost of our daughter’s college tuition. When our second children was born, we increased our policy to take our son’s expenses into account.
If you’re wise, you might start planning for your life insurance needs before your first child is born. For example, if you’re married, you and your spouse may want to take out life insurance for each other, even if you both work. Many couples rely on two incomes to pay monthly expenses, and if one spouse dies, the other would have to cover those same expenses on their own.
Another advantage to buying life insurance sooner is that insurance gets more expensive as you age. And, if you develop a medical condition, you may not be able to get life insurance at all. So if you think you might need life insurance in the future, the best time to get it may be now while you’re young and healthy.
How to buy life insurance
When you decide you need to think about life insurance, determine how much life insurance you need:
- Multiply your annual income by the number of years you want the insurance to cover.
- Add any fixed expenses (like kids’ college tuition).
- Finally, subtract any non-retirement savings or investments you have that could cover some of these costs in lieu of an insurance benefit.
Next, shop around for the lowest quote and the best policy.
You can hop from one major provider’s website to the other, or you can use a company like Policygenius, which scours the internet for the best policy that suits your personal needs. Just fill out their short application form and they’ll find you the highest-value option available.
You should also take the time to learn more about the differences between term life insurance and whole life insurance. Lauren and I stuck with simple term life insurance, and recommend you do, too.
Bestow is a great company to start with if you’re looking for a term life insurance policy. They have a simple online application and they don’t require a medical exam! Their support is not commission-based, so they won’t upsell you on policies you don’t want.
Also check out the top life insurance providers operating in your area.
Life insurance is an important part of your financial toolkit—but it’s not a tool that everybody needs at the same time. It depends on your age, your family situation, and whether you have people who depend on your income.
*In this case, you wouldn’t need a ton of insurance, only enough to cover the outstanding balance on the loan. Although finance companies sell policies that will payoff a loan if you die, these policies don’t offer as much value as a traditional term life policy. For one, the benefit is limited to the balance of the loan at the time of death, not a fixed dollar amount. Also, it’s important to note that you do NOT need this kind of policy unless you have a cosigner who would still be legally responsible for the debt after your death.